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(Bloomberg) -- Denmark’s central bank may set a world record in negative rates this week as policy makers try to flush out speculators still betting against the krone’s peg to the euro.

The central bank will probably cut its benchmark deposit rate by a quarter of a percentage point to minus 1 percent on Thursday, according to Nordea Bank AB, Scandinavia’s largest lender. There’s even a chance Governor Lars Rohde might go as low as minus 1.25 percent to send a clear signal, Nordea said. Danske Bank A/S also predicts a 25 basis-point cut.

The move would follow record currency-market interventions. The central bank has dumped about $30 billion in kroner this year to weaken the currency and defend the peg, bringing its reserves to 35 percent of gross domestic product. Rohde said last week there’s no limit to how high reserves can grow or how low rates can go to prevent the “unthinkable” prospect that Denmark might lose its euro peg.

“The central bank really wants to stamp this out now,” Jan Stoerup Nielsen, a senior analyst at Nordea Markets in Copenhagen, said by phone. “They may be ready to throw their heavy artillery at the market and that’s why I think a 50 basis- point rate cut is a possibility.”

The list of unprecedented events in Denmark’s currency and fixed-income markets has grown since last month, when Switzerland’s decision to abandon its ties to the euro fueled speculation Denmark may be next.

ECB Accord

Policy makers in Copenhagen have sought to dismiss the conjecture, arguing their three-decades-old currency regime can’t be compared with the temporary framework the Swiss National Bank put in place in 2011.

Rohde’s job is to target 7.46038 per euro inside a 2.25 percent tolerance band. In practice, the bank doesn’t allow swings greater than 0.5 percent. The currency regime is backed by the European Central Bank, which is obliged to provide “automatic and unlimited” support should the official tolerance band be breached.

Twelve-month forward-rate contracts traded at 7.36 on Wednesday. That’s stronger than any closing price on record and more than 1 percent above the central bank’s target.

“The central bank is usually able to stabilize the currency-market situation a lot quicker, but nothing is normal these days,” Nielsen said. “It’s difficult to know exactly where the flows are coming from.”

Negative Yields

Rohde has already embarked on a form of quantitative easing to drive down yields and deter investors from buying kroner by asking the government to halt bond sales until further notice. On Wednesday, the debt office rejected all bids received in a Treasury bill auction.

The yield on the June bill traded at minus 1.4 percent after the bids were rejected. Nordea estimates bids would have had to be below minus 1.35 percent at the auction to make it worth the central bank’s while to sell.

The extreme monetary measures have sent yields below zero across government-debt maturities as long as five years. Mortgage-bond yields as long as three years are also negative.

“The central bank will probably want to go down the path of shocking markets,” on Thursday Arne Lohmann Rasmussen, head of fixed-income research at Danske Bank, said by phone. “It’s important for the central bank to stop this before the ECB starts its QE program in March.”

To contact the reporter on this story: Christian Wienberg in Copenhagen at cwienberg@bloomberg.net To contact the editors responsible for this story: Tasneem Hanfi Brogger at tbrogger@bloomberg.net

Bloomberg